Anglo warns potential losses could soar to €7.5bn

ANGLO IRISH Bank made a pretax loss of €4.1 billion in the six months to the end of March, largely as a result of a €3.7 billion impairment charge.

The bank, which was nationalised in January, said a review of the quality of its assets indicated potential losses of €7.5 billion. The Government will provide up to €4 billion in capital to the bank as a result.

Anglo Irish Bank executive chairman Donal O'Connor said that under further "stress scenarios", where the value of assets further deteriorates, the bank could incur additional impairments of €1.5-€3.5 billion. "The results are very bad, but what we are trying to do is be as open as possible," Mr O'Connor told reporters at a briefing yesterday.

Anglo's accounts show that it has made provisions for €4.9 billion of the potential losses in its accounts to date. Some €2.42 billion of this sum relates to commercial and residential development loans, while a provision of €1.5 billion has been made for bad investments.

The bank said the rapid deterioration in global economic conditions, a lack of investment and liquidity, and a significant reduction in property values had eroded the net worth of borrowers, particularly those in Ireland.

The bank now has some €10.7 billion in impaired loans, up from €883 million in September 2008. Some 20 per cent of its Irish loan portfolio is now impaired.

The amount of loans classified as "past due" but not impaired has swollen to €12.9 billion, up from €1.6 billion in September 2008. Some €2.5 billion of these loans have been overdue for more than 90 days.

A further €5.3 billion in loans are not overdue, but deemed to have "a high risk of deterioration".

The bank also has investment properties on its books valued at €293 million, up from €108 million in September 2008. The properties include assets bought by its private banking business that were not allocated to policyholders under investment contracts or sold to private clients. These assets have depreciated by €89 million over the six-month period.

Mr O'Connor said the bank was planning a major review of its costs. Staff costs have already been slashed to €54 million in the six months to March, compared with €98 million in the same period the previous year, partly as a result of the ending of performance-related bonuses.

Mr O'Connor described the €4.1 billion pretax loss as "very, very disappointing". He admitted that mistakes had been made in the lending decisions taken in recent years, particularly in relation to property development in Ireland and described the bank's phenomenal rate of growth and risk appetite at the top of the economic cycle as "imprudent".

The bank has €34 billion in customer deposits, down from €51 billion as of September 2008. The bank said its funding position had been exacerbated by uncertainty over its future strategy, making it increasingly reliant on Central Bank funding. A special liquidity facility was arranged through the Central Bank earlier this year.

The bank has decided to put its external audit contract out to tender. The current auditors, Ernst & Young, will have the opportunity to take part in the tendering process, Mr O'Connor said.

He declined to comment on the performance of Anglo Irish Bank's auditors.